Euro gains a 2nd day amid Spanish bailout optimism; yen slides

The euro climbed for a second day against the dollar and the yen amid speculation Spain is moving closer to requesting a sovereign bailout and unlocking European Central Bank debt purchases.

The 17-nation currency advanced with Spanish bonds, rebounding from yesterday’s one-week low versus the dollar, which was reached after Standard & Poor’s downgraded Spain Oct. 10. Japan’s currency slid before data forecast to show U.S. consumer confidence was near the strongest since May. Singapore’s dollar appreciated after its monetary authority kept policy unchanged. Euro-area industrial output climbed for a second month in August, data showed.

Foreign-exchange traders are “pricing in the additional relief rally that’s going to happen when Spain does request an aid program,” Stephen Gallo, foreign-exchange strategist at Credit Agricole SA in London, said in a telephone interview. “Any bids you see in the price of euro-dollar are reflective of that dynamic.”

The euro strengthened 0.4 percent to $1.2985 at 9:44 a.m. New York time after falling to $1.2826 yesterday, the weakest level since Oct. 1. It climbed 0.4 percent to 101.64 yen after briefly rising through its 200-day moving average, 101.81, for the first time in three days. The yen was little changed at 78.36 per dollar.

Spain’s 10-year bond yield fell 14 basis points, or 0.14 percentage point, to 5.62 percent. They dropped from the euro- era record of 7.75 percent reached in July to as low as 5.55 percent after ECB President Mario Draghi said the central bank is ready to do “whatever it takes” to preserve the euro.

Fed Stimulus

The shared currency will strengthen to $1.35 in the next three to six months, with the dollar weakened by the Federal Reserve’s third round of asset purchases under quantitative easing, which may debase the currency, according to Danske Bank A/S. The U.S. central bank said last month it will buy $40 billion of mortgage debt a month until the economic recovery is well-established.

“We expect the unwinding of short euro positions to continue, and we also expect the Fed’s open-ended easing program to support euro-dollar going forward,” Morten Helt, a senior analyst based in Copenhagen, wrote in a report. “We still like to buy euro-dollar on dips.” A short position is a bet that a currency or security will fall.

While the ECB unveiled an unlimited debt-purchase program on Sept. 6 to curb the region’s debt crisis, Spanish Prime Minister Mariano Rajoy has held off on a decision about whether to request aid, a condition the bank insists on. European Union leaders will hold a two-day summit in Brussels next week.